July 16, 2024

Global oil prices sink below $80/b, as another US bank fails, China’s manufacturing suffers contraction

Oredola Adeola


The second-biggest bank collapse in the United States since the 2008 crisis and data pointing to a slowdown in China’s recovery have sent a shock into the global crude oil market, as prices fell below the $80 per barrel mark to $75.27/b for Brent crude (Nigeria Bonny’s benchmark) and to $71.60/b for West Texas Intermediate (WTI) as at 7 pm on Tuesday.

EnergyDay’s check showed that a further decline for more than a week is likely to threaten Nigeria’s opportunity to finance its 2023 budget which was predicated on the assumed price of $75/bbl.

The price decline started on Friday, April 28, 2023, when the Brent price dropped to 80.33/b. Meanwhile WTI has fallen below $80/b for weeks.

The California Department of Financial Protection and Innovation (DFPI) announced at the weekend that regulators have taken possession of failed First Republic Bank.

This is the third in the series of bank failures in 2023 and the largest lender to collapse since the 2008 financial crisis — bigger than Silicon Valley Bank, which went under in March.

The California financial market regulators seized First Republic Bank and put it in FDIC receivership before selling its assets to JP Morgan.

EnergyDay gathered that was the third major collapse after the shutdown of Silicon Valley Bank and Signature Bank, all happening in just two months, caused by a drop in depositors’ confidence that prompted massive deposit outflows.

These events in the last few days have fueled a crisis of consumer confidence in the U.S. banking system despite repeated assurances from government officials that the system is stable.

The official data released by the National Bureau of Statistics on Sunday showed that the China’s manufacturing activity unexpectedly shrank in April, suggesting a significant decline in oil demand growth.

The China’s manufacturing purchasing managers’ index (PMI) declined to 49.2 from 51.9 in March, below the 50-point mark that separates expansion and contraction in activity on a monthly basis.

According to the Oil Price report, Chinese travel data remains robust, suggesting that despite the contraction in manufacturing activity, oil demand is in a healthier place than it was a year ago.

However, Reuters reported that the cabinet last week unveiled plans to boost trade, employment, and support car exports, facilitate visas for overseas businesspeople, and provide subsidies to firms that hire college graduates.

At the same time, prices continue to receive some support from lower OPEC+ production and expectations that U.S. oil inventories will book yet another draw for last week. If they do, it would be the third weekly draw in a row.